Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

This Stock Is Going to Zero, No Matter What

Blockbuster's Hail Mary may save its life, but it won't help shareholders at all.

Shares of video rental chain Blockbuster (OTC: BLOAQ.PK) are doing their best Mexican jumping bean imitation today, reaching as high as 42% above last Friday's closing price. The catalyst is that Blockbuster is for sale and has a firm $290 million offer on the table. The company wants to get out of bankruptcy and into the arms of a new sugar daddy, and this "stalking horse" bid is meant to kick-start an auction. A stalking horse is a friendly bidder chosen by the company to prevent lowball bids.

The proposed bid is coming from a consortium of Blockbuster's debtholders. $290 million may sound like a generous bid for a company with a $35 million market cap, especially because Blockbuster has virtually no cash and $939 million in debt.

Blockbuster may or may not come back from the dead. Netflix(Nasdaq: NFLX) and Amazon.com(Nasdaq: AMZN) could one day face a serious challenge from Blockbuster's online video services, assuming the company gains serious financial backing along with new ideas on how to reach that status. Likewise, Coinstar(Nasdaq: CSTR) could see Blockbuster's kiosks in partnership with NCR(NYSE: NCR) pose a challenge to the Redbox hegemony in that space. Bankruptcy proceedings don't necessarily kill you, and Blockbuster might not need to liquidate all its assets after all.

Even so, the Ghost of Blockbuster will be a fundamentally different company under entirely new ownership, and the current shares are destined to become worthless. It could happen on April 8, when the company expects to close the stalking horse sale, or it could happen tomorrow if the debtors or the bankruptcy court suddenly lose patience with the lack of progress.